I don't think it means much at all. Software jobs boomed in the 80s and 90s despite high interest rates. Tech tends to do well in almost every econ environment. And already, interest rate forecasts falling.
Why? Interest rates are the cost of money. If money doesn't cost anything/much, you don't have anywhere else to park money, and you can take longer bets! VC funded startups going a decade with no revenue or no profit is something you can tolerate in that environment.
What else are you going to do, put the money in a bond paying 0.5%? After a decade your $100 is now.. $105 in nominal terms, and a loss in real inflation adjusted terms assuming essentially any inflation.
So you gamble that 5% of the 100 companies you invest in will be worth 25-50x what you invested, in 10 years. You end up with $125-150 in nominal terms after a decade for every $100 you started with. A lot better than $105! It is 5-10x the safe return.
Now, when you run the math again with available no/low risk investments yielding 4%, you suddenly need a much higher hit rate and/or much higher return. Simply putting the money in a 4% yield for 10 years gets you $148, the top end of the prior ZIRP era VC return example.. uh oh!
So what do you do, as an investor who still wants to get paid for taking VC risk? To get 5x the safe bond return, you need 25% of your book to return 25-50x, or 10% to return 62.5-125x, or 5% to return 125-250x.
Everything is much harder and you need more of your investments to work, and for the ones that work to return far more.
So tolerance for profitless unicorns for a decade is dramatically reduced.
If you say so, but the 90's were _way_ better than the 00's.
I am not saying that doom is the correct outlook here but I do think it’s a good idea to really think about what a prolonged down market would mean personally. That’s especially true if you were, say, flying high at Google until a layoff and now are looking at things like a public sector job which is quite stable but has no prospect of paying better than half of what you used to make.
Yeah, I think "no more ZIRP" is a stand-in for "the economy is changing". And, that much is true. We just went through record-low rates for a record length of time, straight into the fastest hikes in history. That has repercussions, and I don't think anyone knows what they will be yet (oh and there are some interesting geopolitics as well).
But I can't help but think most of these layoffs are also a return to "normalcy". The pandemic job market was, literally, insane. But even before that, it was hard to get development work; prices were astronomical if you could even find people at all. For the tech ecosystem as a whole, there are advantages to salaries and wages coming down. That shifts around cui bono, but it allows for more ideas to see the light of day...maybe.
All this is to say I don't think it's doom and gloom. We'll have a period of transition and realignment, but tech skills will always be in demand.
[1]: https://techcrunch.com/2023/08/01/uber-reports-first-quarter...
>Their latest funding was raised on Sep 14, 2020 from a Post-IPO Debt round.
I would not even count that since "getting wave after wave of cash from investors" usually means receiving cash in exchange for equity, not borrowing money.
It seems the most recent cash they received from investors was at IPO in May 2019, and before that, Softbank in Jan 2018:
https://www.investopedia.com/articles/personal-finance/11101...
I'm sure they've had an increasingly smaller burn rate in recent years, as they've gotten closer and closer to profitability, and thus required less cash less often (also if the funding round is large enough, they'd need to do it less often), but I'd consider 32 funding rounds wave after wave of cash from investors to me.
That's even more rounds than I assumed, that's more than 2 each year on average.
If VCs expect to double their money on the latest AI fad, do they care if the interest rate is 0% or 5%? likely this does not factor much into their decisions.
By contrast, interest rates went from 0.1% to 5.5% in the past 18 months. Even if you add the prime rate, the cost of capital tripled, from around 3% to around 9%. That's an unprecedented financial shock for pre-revenue companies.
Keeping these fundamentals in mind, it's likely Silicon Valley will see an outflow of workers over the next couple of years, and salaries will be depressed in other cities due to the moving labor supply. Then once easing begins, we'll see that trend reverse yet again.